Which Sports Team Is Less "Taxing" for Free Agents?

In a trade announced this week, Florida scooped up another NFL superstar. The New York Jets traded star cornerback Darrelle Revis to the Tampa Bay Bucs. After the trade, Revis signed a six-year, $96 million contract, with no guaranteed money. However, in exchange for the healthy salary Revis was seeking, Mark Dominik, the general manager of the Bucs, insisted on the no-guaranteed income clause to limit the team's risk. After all, Revis may have been the best player the Jets ever had, but he was also just coming out of knee surgery. Without that clause, if Revis got hurt again, the Bucs would be on the hook for a ton of money with little to show for it.

Revis wasn't entirely happy about being traded, partly because he felt blindsided by the Jets' management. But from a strictly financial standpoint, he should be smiling. Not only did he get the salary he was looking for, but if he becomes a Florida resident, he'll save a bundle – a very large bundle – in state income tax.

If he would've received the same deal from the Jets, he'd pay 8.97 percent of his $16-million-a-year salary in New Jersey state income tax. Now that he's traded to Tampa Bay, he'll pay zero state income tax to Florida and will pay jock tax for some of the Buccaneer road games.

Jock tax is determined by the percentage of duty days played in each state that charges the tax, multiplied by a player's salary. A total of eight games (one preseason and seven regular season) will be played outside of Florida in states that enforce the jock tax. That's sixteen duty days out of an approximate 200 for the year, or 8 percent of his salary that will be subject to jock tax. So what does that work out to?

CPA Robert A. Raiola ran the numbers. Raiola heads the Sports & Entertainment Group for the New Jersey-based accounting firm of Fazio, Mannuzza, Roche, Tankel, LaPilusa, LLC. According to his calculations, the jock tax Revis will pay as a Florida resident will be approximately $89,600. On the other hand, if Revis had remained a Jet, Raiola says he would have paid roughly $1,435,000 in state income tax.

The decision is his, but simply by transferring his residency to Florida, Revis will save $1,345,000 in state taxes. Yeah, he may have been hurt by the Jets turning their backs on him, but in the end, the money he's saving in state income taxes will go a long way to ease the pain.

UPDATE: Flacco Gets Highest NFL Contract – Pre-Tax

Technically, Super Bowl MVP Joe Flacco is the highest paid player in NFL history. His new contract with the Baltimore Ravens pays $120.6 million over six years, or $20.1 million per year. He barely edges out New Orleans Saint Drew Brees. Brees signed a five-year contract for $100 million, or $20 million per year.

That's the gross pay. When you look at how much money these two men will actually be able to use and enjoy, Brees shoots way past Flacco, netting about $470,000 more in his pay envelope (based solely on salary, not accounting for salary, bonus, endorsements, and other income).

Flacco opted to stay with the Maryland team, which means he'll pay a marginal rate of 51.98 percent. And that's before he pays jock tax or property tax.

Not that Louisiana is a low income tax state. Brees will pay 49.4 percent before jock tax or property tax.

The calculations were provided by Americans for Tax Reform (ATR), an organization with a mission of lowering taxes, so some might say there's a spin in the numbers that promotes their agenda.

No matter how you look at it, Flacco made his own choice. ATR pointed out that if he were playing for Dallas, Tampa Bay, Tennessee, or Jacksonville, he would owe zero state or county taxes and would save about $1.72 million per year. As shocking as the numbers are, it does show that for some athletes, taxes and take-home pay aren't the deciding factors.

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As free agents are knee-deep in negotiating deals and signing new contracts, it's hard not to notice that some of the best players are headed for teams where there's no state income tax. Could that be a coincidence? When players are courted by more than one team, the decision which to choose can be complex. Naturally, the variables include a lot more than salary. There's the team itself, the coaches, the reputation, the geography, the climate, where family is located. More and more, it could be that free agents are also giving a lot of weight to what the state income tax situation is before signing a deal.

With Mike Wallace leaving the Pittsburgh Steelers for the Miami Dolphins, he landed a five-year, $60 million contract. In the first two years he's guaranteed $27 million and will save approximately $1.2 million by avoiding Pennsylvania and Pittsburgh taxes. That's nothing to sneeze at! Now that federal tax law limits how much state income tax can be deducted on a federal return, a state's income tax rates may be a bigger part of the decision than ever.

Phil Mickelson called attention to the issue of state income tax earlier this year when he announced he might take his multimillions to Florida. With the combination of a federal tax hike and a California state income tax hike, the difference in his net income is starting to loom larger in his decisions. Tiger Woods left California years ago for the same reason. Now it looks like some NFL free agents may also be eyeballing state income tax as a strong consideration.

Currently there are four states that have NFL teams and no state income tax:

Texas: the Dallas Cowboys and the Houston Texans.

Washington: the Seattle Seahawks.

Florida: the Dolphins, the Buccaneers, and the Jaguars,

Tennessee: the Titans. Note: Tennessee does have state income tax, but it also has what's known as a "privilege tax," which is a flat rate of $2,500 per game charged to professional athletes who play in Tennessee (regardless of income, up to three games for a maximum of $7,500 per year). NFL players, however, aren't charged this privilege tax on NFL income, whether they're Tennessee residents or visiting teams.

As for the jock tax, for NFL players, this tax isn't calculated on the number of games played out of state. It's about the number of days a player works (called "duty days") out of state compared to total days worked, multiplied by the salary. Generally, the result is that less than 5 percent of income is subject to jock tax.

LeBron James and "The Decision"

A few years ago, NBA star LeBron James created a publicity disaster for himself when he became a free agent and entertained offers from franchises other than his Cleveland Cavaliers. He was courted by half a dozen other teams, including four majors: Cleveland, the Chicago Bulls, the New York Knicks, and the Miami Heat. He agonized over "The Decision" (as it came to be known in the media) and in the end, chose Miami. "I'm taking my talents to the South Beach," he told the media. "It's going to give me the best opportunity to win and to win for multiple years."

There's no way to know how much the state income tax question weighed in his decision. At first glance it appeared to be a no-brainer, since going to Miami meant taking a salary of up to $29 million less. Cleveland offered a six-year, $128 million contract while Miami offered a five-year deal, worth up to $99 million. The overall financial picture, however, looked much different. For a player like James, who also had the potential to earn tens of millions in endorsement income each year, salary may have been less of a factor than expected.

In 2010 when he made the decision to leave Cleveland, he left behind a state income tax rate of 6 percent in favor of Florida's no state income tax. Back then, he was also looking at many more millions in estimated earnings from endorsements. Today he expects to earn far more, tens of millions, in fact, in endorsements by the end of 2013. With figures like that, only a rube would not consider the tax picture.

So as more and more free agents strike deals, will the teams in Florida, Tennessee, Texas, and Washington have an automatic advantage based on no state income tax? It's hard to say because again, there are many facets to the decision. CPA Robert A. Raiola – who heads the Sports & Entertainment Group for the New Jersey–based accounting firm of Fazio, Mannuzza, Roche, Tankel, LaPilusa, LLC– says yes, a state's income tax situation may now weigh into the decision when a free agent looks for a new team.

"State income taxe may not be the number one factor, but certainly, it is part of the equation," Raiola said.

When it comes down to the negotiations table, you can bet the agents from no state income tax teams are going to whip out the numbers, that is, the net income spreadsheets that will dazzle even the most team-loyal players.

"The decision of which team to play for is complex, and money is just one factor," said Raiola. "But looking at the net income between two states, for example, California with state income tax and Florida without, the difference is significant. That leaves us wondering, just how much more would a California team have to pay to make their offer as attractive as an offer from a Florida team?"